Bill Gates once said “Content is King”. That was twenty years ago but it still rings true today. In January 1996, he wrote an essay and made the bold prediction that real money will be made from content on the Internet, just as it was in broadcasting. He couldn’t have been more accurate. Newspaper and TV advertising sales have tumbled sending the earnings of News Corp, Fairfax, Fox, NBC and Viacom down south. Television-advertising sales in the US fell 7.8% to $61.8bn last year, that’s the largest fall outside of a recession. The sole reason is because content is being created online by Google, Facebook, Netflix, Disney and YouTube. The tech giants have increased their investments in online content capturing every advertising dollar that was once in broadcasting. The money has pivoted to content produced on these online platforms and they’ve managed to seize the lion share of advertising dollars.
Gates was right with his prediction. Content has shifted to the Internet because it’s free and it’s easy to access. Anyone can publish free content. Anyone can view it. This is what has fed the massive content tech machine and causes it to grow and evolve to this day. Advertising dollars are simply following viewers who have moved from TV to the Internet. Media companies are trying to keep up by launching their own streaming video services but the space is highly competitive. It’s a losing battle trying to compete with Facebook and Google (YouTube) whose users upload free user-generated content every second. For advertisers it’s easy. They simply associate themselves with content creators that appeal to consumers. The content world is transforming so rapidly, that a new avenue for content has opened creating amazing content and new experiences. It’s called eSports. With a little less than ten years under its belt, eSports (gaming) is in its infancy but fast becoming the biggest content driver on the web, drawing huge sums of money and large crowds from all over the world. But before we delve deeper, you’re probably thinking, “What’s is eSports?” It’s Electronic Sports abbreviated eSports and is used as a general term to describe the play of video games competitively. In other words playing video games against other gamers. The thing is games have come a long way from the Super Mario Nintendo 64 days.
Gaming is no longer a nerdy hobby. It’s a mainstream sport backed by multi-million dollar budgets.
If you think about it, eSports aren’t all that different from a game of chess or poker, or for that matter AFL or NRL. The big difference between AFL and eSports is the level of physical activity. Whilst AFL is a full physical sport, eSports are mind based sports with limited physical activity. Both are competitive games played amongst a team of players for a tournament usually at a professional level.
Still not convinced? Keep reading…
eSports (gaming) championships are held at major arenas. Large sporting venues like the MCG are used to hold these huge events. In-fact the finale of the 2017 World Championship in Katowice, Poland set a new record for live attendance. It had more than 173,000 attendees, that’s about 90,000 more than the AFL Grand Final last year.
What has made all this possible?
In two words, content and connectivity. With the delivery of streaming online content, the world went from Blockbuster video to Netflix almost overnight causing structural change and radical transformation. The need for content is still bigger than ever and remains the most effective way to connect with customers. It may not be obvious right away, but eSports delivers content to its consumers. The games played by gamers is content. Content is what drives people’s attention and spending patterns. That’s why the most creative and savvy companies realise the eSports potential and are trying to navigate their way through new territory to connect to this user base via content and corporate sponsorship. For example – Coca-Cola sponsored the League of Legends World Championship. This is one the largest eSports competitions in the world. It’s the same thing as Adidas sponsoring the Hawthorn Football Club or Westfield sponsoring Melbourne Victory Football Club. Monster Energy sponsors Call of Duty teams such as Team Liquid, Fnatic and Team EnVyUs. Most household consumer brands have long histories of sport sponsorship, so it makes sense to branch out into eSports.
What about connectivity?
Twenty years ago, social media didn’t exist. People communicated via long distance telephone calls and handwritten letters sent in the mail. It’s hard to imagine how the world functioned without Facebook, but it did. People went to the cinemas to watch movies and they wined and dined without looking at their mobile phones. The world was essentially disconnected. But as technology advanced, Facebook was born, and it became the first pioneer to bring the world closer together. It is in the heart of Facebook’s mission, to connect everyone. And so it did. It enabled people to communicate with each other halfway across the globe in an instant. We could now share knowledge and ideas, strengthen communities and economies and connect with each other all via online content. Facebook transformed the world into a global online community overnight. And in its footsteps so did Instagram, SnapChat, Twitter, YouTube, Google and Netflix. All of these platforms generate content that connects everyone.That leaves one community still disconnected. And that was the gaming community. A decade ago Xbox and PlayStation gamers were confined to the realms of their living room with a maximum of eight players able to play at any one time. Gamers were disconnected from each other simply because the internet wasn’t able to deliver interactive gaming at a meaningful pace. Using archaic copper wires was a massive barrier for the gaming world. But recent tech advancements i.e. NBN and soon to be 5G, have broken down these barriers and have connected gamers in significant ways. With no barriers, the gaming world came together. Gamers could now connect with each other. That meant Microsoft Xbox or Sony PlayStation gamers could connect with thousands of other players from around the world and compete with each other. The days of 8 player Halo that required two TV’s being set up in different corners of a room with two Xbox consoles, was over. Internet connectivity transformed gaming into online gaming. What followed next was eSports and Twitch. The gaming industry evolved from a hobby to something similar to the music industry. Fans pay to be entertained live by performers they love. This is now the case with elite gamers. They pay to watch their favourite gamers play. Twitch then created to deliver this gaming content to its fan base. Think of it as YouTube but for live video game content.
Like YouTube, Twitch users create an account and upload live video of themselves gaming. Currently, Twitch has 100 million monthly viewers. Gaming enthusiasts will watch others game so that they can learn and become better. For example – Ninja is a 26 year old gamer that makes $560,000 a month by allowing his 4.5 million subscribers to watch him play games on platform Twitch. Twitch subscribers pay $4.99 a month with half of the money going to the company, and half going to the streamer. Who owns Twitch? None other than Amazon. Amazon bought the popular game-streaming service for $970m in August 2014. With a 400 million gamer fan base that tipped to hit 500 million in a few years, the big dollars are earnt by the video game and console manufacturers. Here are the main players in the industry:
- Tencent – League of Legends is the most successful Multiplayer Online Battle Arena game. Net worth $200 billion.
- Sony – Main product is the PlayStation.
- Microsoft – Main product is Xbox.
- 2K – Networth $3.22bn. Producer of Grand Theft Auto.
- Activision Blizzard – Networth $30bn. Producer of Call of Duty series, Destiny, World of Warcraft, Diablo, and Overwatch.
- Apple – Whilst the company doesn’t produce games or consoles, it earns money from every transaction that occurs on its operating system.
- Electronic Arts – Net worth $22bn. It produces sports games such as NBA, FIFA, and NFL.
- King – Net worth $5.69bn. It produced the widely poplar Candy Crush Saga that earnt $230m.
- Nintendo – One of the oldest gaming companies famous for The Legend of Zelda, Star Fox, and Donkey Kong. Networth $20bn.
- Ubisoft – Networth $3.69bn. Produced Assassin’s Creed series and Watch Dogs.
How can an investor get involved?
There are a few ways investors can get on board via companies that are either directly involved in eSports or indirectly both locally and globally. Whilst eSports is still in its infancy, it is changing the modern-day classroom. Whilst we may think it’s weird to watch someone game, its common language for millennials. Courses and subjects taught in school is starting to consider a possible career in the design, creation, production and the programming of games. Gaming is creating a real career path.
Here are two ASX listed stocks that give investors exposure to eSports.
- Telstra (TLS) – Will be the backbone to eSports in Australia when its 5G network is launched. Lower latency and quicker speeds will enable eSports to be played almost anywhere.
- HT&E (HT1) – (Former APN News and Media) is looking to launch a national competitive gaming league with founding teams from most major cities.
However it’s not the Australian stocks that investors should be looking at, it’s the global gaming tech giants that directly involved in competitive video gaming that benefit most from this $1.5 billion industry. Competitive gaming is being touted as the next big thing in entertainment so here are three stocks we think investors should look at:
- Activision Blizzard (NASDAQ:ATVI) – Is the world’s leading video game publisher.
- Electronic Arts (NASDAQ:EA) – Like Activision Blizzard, EA is a powerhouse when it comes to video game franchises. EA Sports is a division of Electronic Arts that develops and publishes sports video games.
- Tencent Holdings (0700.HK) – Tencent Games is a Chinese video game company and a division of Tencent. As of 2017, it is the largest gaming company in the world by revenue and market value.
If picking individual stocks is too high risk, you can go the managed fund or ETF route via these two assets:
- Munro Global Growth Fund – Nick Griffin’s managed fund has a position in the video games publisher ActivisionBlizzard. The fund was the winner of the Emerging Manager of the Year for 2018.
- Platinum International Brands Fund – Is focused on companies with well-recognised consumer brand names such as Facebook and Alibaba. The fund offers investors diversified exposure to businesses that operate in a variety of industries and from all parts of the world.
- ETFMG Video Game Tech ETF (NYSE:GAMR) – Is an ETF and was up 60% last year on the back of the eSports revolution. The index is designed to reflect the performance of companies involved in the video game technology industry.
What is the future of gaming and where are we headed?
The Gaming industry is still in its infancy but it’s transforming at a rapid pace. Both connectivity and the delivery of content have transformed a nerdy pastime into big business that draws 400 million people from all over the globe. From the classroom to entertainment to real sports, in a few decades we may see eSports athletes compete at the Olympic Games. It’s a real possibility. Baseball and cricket may fade away simply because no one from the millennial era will be following it. It’s sad but reality. With big money pouring into eSports and viewership numbers climbing, companies and media firms will associate themselves and connect with this fan base, more and more. Either way you look at it, the eSports phenomenon is here and its popularity is rising. The companies that benefit most are the ones that are at the forefront of capturing this content or connecting these users together and transforming this industry into the mainstream. They are Amazon (Twitch), Microsoft (Xbox), Sony (PlayStation), Tencent (Games) and Google (YouTube). The next decade promises to be one fascinating game to watch or to play. As eSports moves from developing to mainstream, maybe many years from now, it could be the sports that millennials will talk about to their grand kids when they’re older. It therefore makes sense to tilt your portfolio towards this evolving thematic.